What Makes Bitcoin Volatile?

What Makes Bitcoin Volatile?

Traders are always concerned about the volatility of 'Bitcoin'. It is important to know what makes the value of this particular digital currency very unstable. Just like many other things, the value of 'Bitcoin' also depends on the rules of demand and supply. If the demand for 'Bitcoin' increases, the price will also increase. On the flip side, a decrease in demand for 'Bitcoin' will cause a decrease in demand. In simple words, we can say that prices are determined by the amount of what the trade market agrees to pay. If a large number of people want to buy 'Bitcoin's, then the price will go up. If more people want to sell 'Bitcoin's, then the price will go down.

Please note that the value of 'Bitcoin' can change when compared to commodities and more established currencies. This fact can be credited to a relatively small market size, which means that a smaller amount of money can shift the price of 'Bitcoin' more clearly. This inconsistency will reduce naturally as time passes when the currency develops and the size of the market grows.

After being mocked at the end of 2016, 'Bitcoin' touched a new record high in the first week of this year. There may be several factors that cause 'Bitcoin' to become unstable. Some of them are discussed here.

The Bad Press Factor

Bitcoin users are mostly afraid of various news events including statements by government officials and geopolitical events that 'Bitcoin' can be arranged. This means that the 'Bitcoin' adoption rate is interrupted by negative or bad press reports. Bad news creates fear for investors and prohibits them from investing in this digital currency. An example of a bad headline is the main use of 'Bitcoin' in processing drug transactions through the Silk Road which ended in market FBI termination in October 2013. This kind of story produced panic among people and caused 'Bitcoin' to score greatly to decline. On the other hand, veterans in the trade industry see such negative incidents as evidence that the industry 'Bitcoin' is getting more mature. So, 'Bitcoin' starts to get its value increasing as soon as the bad press effect disappears.

Fluctuations in perceived value

Another great reason for the value of 'Bitcoin' being volatile is the fluctuation in the perceived value of 'Bitcoin'. You might know that this digital currency has properties similar to gold. This was ruled by design decisions by core technology makers to limit production to static quantities, 21 million BTC. Because of this factor, investors can allocate less or more assets into 'Bitcoin'.

News about Security Violations

Various news agencies and digital media play an important role in building negative or positive public concepts. If you see something advertised Profitably, you tend to do it without paying too much attention to the negative. There has been news of a 'Bitcoin' security breach and that really made investors think twice before investing their hard-earned money in trading 'Bitcoin'. They become too vulnerable to choose certain 'Bitcoin' investment platforms. 'Bitcoin' can become unstable when the 'Bitcoin' community reveals security vulnerabilities in an effort to create a good open source response in the form of security improvements. Security issues like that give birth to some open-source software such as Linux. Therefore, it is recommended that 'Bitcoin' developers must expose security vulnerabilities to the general public to make a strong solution.

The latest weakness of 'OpenSSL' which was attacked by the 'Heartbleed' bug and reported by Neel Mehta (a member of the Google security team) on April 1, 2014, seems to have some effects down on the value of 'Bitcoin'. According to some reports, the value of 'Bitcoin' decreased by 10% in the following month compared to the US Dollar.

Small option value for large 'Bitcoin' Proportion holders

The 'Bitcoin' volatility also depends on the holders of 'Bitcoin' which has a large proportion of this digital currency. It is not clear to investors 'Bitcoin' (with current ownership above% 2410M) that how they will resolve a position that extends to the position of fiat without moving the market seriously. So 'Bitcoin' has not touched the level of mass market adoption which will be important to give the option value to large 'Bitcoin' holders.

Effects of Mt Gox

The recent high profile damage at 'Mt Gox' is another good reason for the volatility of 'Bitcoin'. All of these losses and the news produced about large losses have a dual effect on instability. You might not know that this reduces the general use of 'Bitcoin' by almost 5%. This also creates potential appointment of the remaining value of 'Bitcoin' for reasons of increasing scarcity. However, replacing this elevator is a negative result of the news series that was followed. In particular, many other 'Bitcoin' gates see big failures at Mt Gox as optimistic for the long-term 'Bitcoin' outlook.

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